Investing comes with choices. However, choosing how to invest is a common confusion for many investors. An invester can make a one time investment via lumpsum investment or can go for a period of time via Systematic Investment Plan (SIP). Many investors prefer periodic investments as the SIP offer more lump-sum investments.
It's important to make right decision to improve your portfolio in future. Everyone is investing nowadays, and picking the appropriate investment strategy is crucial. Here is the primary difference between these two:
Investors don't have to check the market closely
Lump-sum investments are more helpful when you invest during a low market. However, the SIPs gives you the chance to enter during different market cycles. Investors are don't required to watch the market closely.
Returns
Returns from these funds depends on the present market conditions, in both cases. SIPs usually perform better in unfavourable markets. In case of Lumpsum investments, they draw higher returns when the market is in a stable conditions.
Risk
Investors who can opt for higher risks can go for a one-time investment, i.e Lumpsum investment.
Average cost
As the investment is spread over time, the average investing cost comes down. Therefore, the investing in mutual funds via SIP is least affected by market.
Flexibility in investment
In case of SIP, flexibility in investment is high as you can pause, stop, and withdraw any amount. Whereas, in case of lumpsum, it's very low.
Market volatality
If we talk about SIPs, they do not depend on market turbulence independently. Whereas, Lumpsum approach is very market responsive.
Tenure
SIPs are made with a point of view of shorter tenure and lumpsum investment is made with longer tenure.